The heightened scrutiny, evolving regulations, and increased risk of audits that characterize today’s climate make robust document retention policies an urgent necessity for all nonprofits. This is especially true for those organizations that rely on federal, state, and local grants, where meticulous record-keeping is not just a best practice, but a critical compliance requirement. In this environment, where accountability and transparency are paramount, developing and rigorously adhering to a comprehensive document retention policy is no longer optional; it’s essential for safeguarding your organization’s mission and ensuring continued funding.
What is a Document Retention Policy?
Essentially, a document retention policy, also known as a document management policy, is a systematic approach to managing an organization’s records. It outlines how long different types of documents should be kept, how they should be stored, and when they should be destroyed. This policy ensures that your nonprofit maintains essential records while avoiding the clutter and potential liabilities associated with holding onto unnecessary information. Here’s a downloadable sample of a document retention policy from National Council of Nonprofits.
Why Nonprofits Need Document Retention Policies
The importance of a well-defined document retention policy cannot be overstated. Here’s why:
- Good Governance: A strong document retention policy is a hallmark of responsible governance. It demonstrates transparency, accountability, and a commitment to sound management practices. By establishing clear guidelines for record-keeping, nonprofits can build trust with donors, funders, and the public.
- Form 990 Scrutiny: The IRS Form 990, the information return that most tax-exempt organizations must file, directly addresses document retention. A well-documented policy demonstrates that your organization is taking its record-keeping responsibilities seriously, which is a key factor in maintaining your tax-exempt status.
- Cost-Saving Mechanism: Effective document retention can significantly reduce storage costs. By systematically purging outdated records, nonprofits can save on physical and digital storage space. Moreover, it streamlines information retrieval, saving valuable time and resources.
- Litigation Preparedness: In the event of litigation, a well-structured document retention policy can be invaluable. It ensures that relevant records are readily available, minimizing the risk of spoliation (destruction of evidence) and strengthening your legal position.
- Grant Compliance: Nonprofits receiving federal and state grants are subject to stringent record-keeping requirements. Granting agencies often specify the types of documents that must be retained and the length of time they must be kept. Failure to comply can result in penalties, including the loss of funding.
- Increased Audits and Scrutiny: In the current economic and political climate, nonprofits are facing increased scrutiny from regulators and the public. Having a solid document retention policy in place demonstrates your organization’s commitment to transparency and accountability, which can help mitigate potential risks.
Components of a Strong Document Retention Policy
A comprehensive document retention policy should include the following key components:
- Identification of Parties Subject to the Policy: Clearly define who is required to comply with the policy, including staff, board members, volunteers, and outside advisors.
- Designation of Responsibility: Identify the employee or department responsible for overseeing the policy’s implementation and compliance.
- Document Classification and Retention Periods: Categorize relevant documents and specify the appropriate retention periods for each category. This should include both physical and electronic records.
- Personal Device Protocols: Address the use of personal devices for organizational communication and data storage, outlining acceptable use and security measures.
- Automatic Deletion Procedures: Establish procedures for the automatic deletion of non-retained documents, ensuring that data is securely and permanently removed.
- Legal Hold Protocol: Develop a written protocol for how the policy will be modified in the event of a legal hold, which suspends the deletion of relevant documents.
- Annual Review and Training Mandate: Specify an annual review period for the policy and mandate regular training for all relevant parties to ensure ongoing compliance.
Identifying Relevant Parties
Developing and implementing a document retention policy is a collaborative effort. Here’s a breakdown of the parties to involve:
- Step 1: Parties to Involve in Pre-Document Retention Policy Revision:
- IT Personnel: They can provide expertise on data storage, security, and retrieval.
- Legal Counsel (In-House and Outside): They can advise on legal requirements and potential liabilities.
- Relevant Company Stakeholders: Include key staff and board members who have knowledge of the organization’s operations and record-keeping needs.
- Step 2: Parties Subject to Document Retention Policy:
- Staff, board members, outside advisors, even volunteers.
- Step 3: Parties Responsible for Training, Implementation, and Compliance:
- Clearly designate individuals or departments responsible for these critical functions.
Identifying Documents to Maintain Permanently
Certain categories of documents should be retained permanently due to their historical, legal, or financial significance. These include:
- Articles of Incorporation: These documents establish the organization’s legal existence.
- Audit Reports: These reports provide an independent assessment of the organization’s financial health.
- Corporate Resolutions: These documents record important decisions made by the board of directors.
- Checks: Canceled checks can serve as proof of payment.
- IRS Determination Letter and Other IRS Correspondence and Filings: These documents confirm the organization’s tax-exempt status and compliance with IRS regulations.
- Year-End Financial Statements: These statements provide a comprehensive overview of the organization’s financial performance.
- Insurance Policies: These documents provide coverage for potential liabilities.
- Minutes of Board Meetings and Annual Meetings, as well as Meeting Materials: These documents record the organization’s governance activities.
- Real Estate Deeds and Mortgages: These documents establish ownership and financial obligations related to real property.
- IP-Related Documents, Like Patents and Trademarks: These documents protect the organization’s intellectual property.
Document Retention and Grant Compliance: A Critical Connection
For nonprofits receiving federal and state grants, document retention is not merely a best practice—it’s a legal obligation. Granting agencies often have specific requirements for record-keeping, including:
- Financial Records: Grant recipients must maintain detailed financial records, including invoices, receipts, and bank statements, to document how grant funds were spent.
- Program Records: Organizations must maintain records that demonstrate the progress and outcomes of grant-funded programs.
- Personnel Records: Grant recipients may be required to maintain personnel records, including time sheets and payroll records, to document staff time spent on grant-funded activities.
- Compliance Records: Organizations must maintain records that demonstrate compliance with all applicable laws and regulations.
The Urgency of Document Retention Today
The current environment demands that nonprofits prioritize document retention. Factors contributing to this urgency include:
- Increased Regulatory Scrutiny: Federal and state agencies are increasing their oversight of nonprofit organizations, particularly those receiving government funding.
- Cybersecurity Threats: The rise of cyberattacks and data breaches underscores the importance of secure document storage and destruction.
- Remote Work Challenges: The shift to remote work has created new challenges for document management, as organizations must ensure that remote employees comply with retention policies.
- Increased Litigation: The risk of litigation is ever-present, making it essential for nonprofits to have robust document retention policies in place.
- Transparency and Accountability: Donors and the public are demanding greater transparency and accountability from nonprofit organizations.
Nonprofit should be implementing a strong document retention policy if they haven’t already. You can safeguard your organization’s mission, ensure compliance, and build trust with your stakeholders. And yes, litigation is expected in the coming years for nonprofits from a variety of sources. We have to be prepared. In today’s complex and challenging environment, this is more critical than ever. Sources and related content